CareCloud Inc (CCLD) 2021 Q2 法說會逐字稿

Welcome to the CareCloud Second Quarter 2021 Results Conference Call.

(Operator Instructions) Please note, this event is being recorded.

I would now like to turn the conference over to Kim Blanche, CareCloud's General Counsel.

Ms. Blanche, the floor is yours.

Thank you.

Good morning, everyone, and welcome to the CareCloud's Second Quarter 2021 Conference Call.

On today's call are Mahmud Haq, our Founder and Executive Chairman; A. Hadi Chaudhry, our Chief Executive Officer, President and Director; Bill Korn, our Chief Financial Officer; Stephen Snyder, our Chief Strategy Officer and Director; Karl Johnson, our Chief Growth Officer; and Jerry Howell, CEO of medSR.

Before we begin, I would like to remind you that certain statements made during this conference call are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities Exchange Act of 1934 as amended.

All statements other than statements of historical facts made during this conference call are forward-looking statements, including, without limitation, statements regarding our expectations and guidance for future financial and operational performance, expected growth, business outlook and potential organic growth and acquisitions.

Forward-looking statements may sometimes be identified with words such as will, may, expect, plan, anticipate, upcoming, believe, estimate or similar terminology and the negative of these terms.

Forward-looking statements are not promises or guarantees of future performance and are subject to a variety of risks and uncertainties, many of which are beyond our control, which could cause actual results to differ materially from those contemplated in these forward-looking statements.

These statements reflect our opinions only as of the date of this presentation, and we undertake no obligation to revise these forward-looking statements in light of new information or future events.

Please refer to our press release and our reports filed with the Securities and Exchange Commission, where you will find a more comprehensive discussion of our performance and factors that could cause actual results to differ materially from these forward-looking statements.

For anyone who dialed into the call by telephone, you may want to download our second quarter 2021 earnings presentation, please visit our Investor Relations site ir.carecloud.com, click on events and download the earnings presentation.

Finally, on today's call, we may refer to certain non-GAAP financial measures.

Please refer to today's press release announcing our second quarter 2021 results for a reconciliation of these non-GAAP performance measures to our GAAP financial results.

And with that said, I will now turn the call over to our CEO, Hadi Chaudhry.

Hadi?

Thank you, Kim, and thank you, everyone, for joining us on our second quarter 2021 earnings call.

2021 is shaping to be a breakout year for CareCloud.

I am pleased to report not just a strong quarter, but a record-breaking revenue quarter.

As a team, we are thrilled about this continued momentum, and I feel great about what we have accomplished so far this year.

As we charge ahead onto the back half of 2021, I'm happy to report that we are raising our full year outlook as we continue to integrate and cross-sell our acquired assets and drive increasing levels of organic growth.

The team remains focused on delivering leading technology-enabled business solutions to medical practices and health systems nationwide.

This mission is incredibly important as we empower the more than 40,000 providers we serve while they focus on delivering excellent care to patients across virtually all communities in the country.

This ability to deliver comprehensive end-to-end solutions necessary for our customers and prospects to thrive in today's health care environment continues to be a highly differentiated strength.

It is remarkably rewarding to us to work with such a cross-section of our health care system, whether we are enabling a 3 doctor medical group in your neighborhood to run their businesses more effectively, partnering with the health system to automate mundane and repetitive tasks while working with complex enterprise groups and deploying a full suite of products and services.

The responsibility we are entrusted with to deploy our software solutions to these incredible health care organizations, including our certified electronic health records products, our patient experience management platform and a host of other software applications is what fuels us to continue to innovate on their behalf.

In terms of continued growth, we are pleased to see this coming from a variety of drivers across our platforms and strategies.

Our market continues to reward our expansive value proposition through organic sales of our award-winning software solutions to completely new customers and cross-selling opportunities offer industry-leading services to existing customers open to aligning more of their critical practice functions with CareCloud.

We also continue to pursue unique and interesting partnership and leverage of a proven acquisition methodology.

These growth cementers are firing nicely and driving consistent growth up into the right.

Our investments in sales and marketing with a focus of driving top line revenue growth, both organically and through acquisitions, while simultaneously finding new and distinctive areas for automation and stripping out cost is paying dividends.

A significant reason for this ability to continuously show strong performance has been our investment in the technologies that our customers use.

Our sophisticated internal software and process automation, coupled with an industry best cost basis for a large portion of our team.

For today's call, I felt it's important to focus on how we are evolving and why we continue to remain incredibly bullish on our prospects.

During my last earnings call, we discussed our new brand and how the name CareCloud better reflects who we are today as a company.

How this name more richly encapsulates the technology-enabled solutions we take to market and how we have grown to be an industry-leading tech company in the health care market.

As CEO, I recently had the opportunity to travel across the country and visit some of our tremendous customers.

It is a delight to see how we are empowering our clients with solutions to tackle many of the challenges they are facing daily, so they can focus on patients while we focus on their business.

On a recent trip to a client, we discussed, however, Microbots of the Robotic Process Automation bots by increasing the throughput of our respective teams, driving out inefficiencies in their workflows and speeding of cash flow, saving them tens of thousands of dollars annually and decreasing their days in AR.

On another trip, we learned how clients are leveraging our cloud-based business intelligence platform, PrecisionBI, to perform deep reimbursement analysis and discover payment gaps from insurance carriers to improve reimbursements and even predict visit trends for new and existing patients.

As we think about the why we do, what we do, our focus is all about enabling the business of health care and giving providers the solutions they require to deliver the care needed to their patients.

We do this through a variety of means.

But the primary way we accomplish this is through our vast array of software platforms, we have as a part of able product portfolio as well as our additional capability to craft customized solutions as needed to meet the unique needs of our customers.

We achieved these results on behalf of our clients because our software products are inextricably linked with our service offerings.

It is this combination of technology-enabled business solutions that is driving the success our customers enjoy and further propelling us to new heights.

And that provides a good bridge to discuss our most recent acquisition.

In June of this year, we closed on a strategic acquisition with the specific intent on helping us accelerate our growth in the hospital market, which has historically not been a large opportunity for us, and we want to change that.

The acquisition was a combination of 2 companies that has recently come together, Santa Rosa Staffing and MedMatica Consulting Associates.

These 2 organizations have been serving the hospital market for over 2 decades and have partnered with more than 100 health systems over the past 2 years alone.

This is now going to market as medSR.

We believe there are remarkable synergies between medSR and CareCloud to drive new growth opportunities within the hospital market.

Uniquely, we are not focused on competing directly against other EHR vendors in this segment.

There is significant upside in a massive addressable market for us to go after, where we don't need to compete directly with an EHR offering.

Rather, we plan to work together and partner with these companies in meaningful and cooperative ways to best serve over mutual clients.

Through this acquisition, medSR now has the ability to market solutions for business intelligence with our PrecisionBI platform and robotic process automation through our vendor specific Microbot deployments and recommended tailored solutions in revenue cycle management, intelligent accounts receivable wind down services, provider credentialing and medical coding, to name a few.

This is, of course, additive to medSR's premier health care IT and operations consulting competence and long-established stance around vendor-agnostic technology transformation and activation services for their clients.

One of the biggest sales challenging -- challenges in the hospital market segment is access to decision-makers.

MedSR's years of experience and stellar reputation, we believe positions us for continued future growth while providing medSR with the capabilities required to accelerate and meet the needs of their hospital clients.

We couldn't be more excited about this latest acquisition.

One early proof point of our thesis to drive growth by combining medSR's proven processes, domain knowledge and deep health system relationship with our operational scale and resources is a recent health system win in Pennsylvania.

This is a great example of our sales organization, working together to expand share of wallet.

This latest deal is great validation, and we are very optimistic about our growth prospects in the health system space.

We believe there is more to come as we are in active conversations with half a dozen other health systems.

As we continue to work this exciting pipeline, we expect these deals to shape up like any enterprise sales and likely have slightly longer sales cycles and take a bit more time to mature than our mid-market and smaller practice deals.

Switching focus to second quarter sales.

Our increased investment in sales and marketing, combined with our expanded solution set, has continued to contribute to growth and has resulted in new customer signings and expansion through upsell.

As we have said before, organic sales is a relatively new endeavor for us, and we are pleased with the steady growth engine the team is building.

We continue to place more fuel on this engine, and it shows as we have increased our year-over-year investment in sales and marketing from $1.5 million in 2019 to $6.6 million in 2020 and are on pace to increase that by another 30% to 40%.

We will continue to make these investments so long as we can maintain our sales momentum and healthy client acquisition cost.

While our CAC has historically been hovering around an industry law of $0.50 or for every dollar invested in sales and marketing, we yield $2 in bookings, we believe that we must continue to constantly evaluate these metrics and adjust as necessary.

I'm pleased with the team and the progress we are making and continue to believe that it is not unrealistic for us to be closing by the fourth quarter of this year at a rate of twice the average bookings of Q4 2020.

Allow me to focus your attention on another incredibly important topic.

Many would agree that CareCloud is widely regarded for its comprehensive suite of beautifully designed products, a flexible go-to-market approach and its powerful technology platforms.

However, some might not fully appreciate our market position.

That is why I'm focused on ensuring that we crystallize our brand and market position and more explicitly articulate the distinction between us and our competitors.

Our company and technology-enabled business solutions today truly have a distinct position in the health care ecosystem.

We have the unique ability to execute well in both the ambulatory and health system market in contrast to many of our peers.

While we offer point solutions such as Telehealth applications, appointment reminder calling tools and simple mobile apps for charge entry to name a few, our main software platforms encompass a full suite of proprietary and comprehensive core system software for financial, clinical, patient and analytics workflows, much how cloud-based ERP solutions do the same in the other industries.

This is vastly different to other competitors that may look similar to us on the surface.

In our minds, there's a very clear line of delineation between traditional mom-and-pop or large medical billing companies, BPOS, health care technology companies like us and pure-play SaaS businesses.

While it is true that we go after similar customers across the light market segments and even offer comparable value propositions, such as electronic health records, practice management system and revenue cycle management services amongst others.

The way we deliver these solutions and the manner in which these services are performed and executed are fundamentally different in practice.

While there are similarities, our opportunities for scale, growth, and new innovation and enterprise value far exceed those of traditional billing services and BPOS.

In our opinion, we share more similarities to cloud-based SaaS companies whose customers use their own products than we do to large medical billing companies and BPOS, who typically rely on third-party software products.

In fact, more than 80% of our revenue is directly derived from customers using at least one of our technology solutions.

We also believe we have a slight advantage in some areas over pure-play SaaS companies as we are able to add services and drive a much larger average deal size than we would typically see from monthly software subscription fees alone.

In other words, we are neither a BPO, nor are we a pure-play SaaS provider.

We are a tech company providing health care software and services to providers nationwide.

We do this by leveraging both technology and services to create valuable integrated solutions for our customers, primarily through proprietary platforms.

Further, our customers and prospects come to us over our competitors because of our proven ability to provide them with our award-winning, out-of-the-box software product in tech-enabled services as well as our ability to custom develop or customize our systems to meet the unique challenges by leveraging our large global team of R&D and IT professionals.

When you analyze the market landscape, this strategy is highly differentiated and gives us a competitive advantage.

This approach provides us with deeper client engagement, enabling a more complete service offering to our customers across a larger portion of their total business.

Our technology DNA is enabling our enterprise sales team to win deals where others simply do not have the solution needed or are ill-equipped to execute against stated requirements.

One recent example from this last quarter was our closing of Spring Hills Management Services Organization.

Spring Hill is a pioneer in building and operating extended care and rehabilitation community while also utilizing a remote patient monitoring system.

The executive at Spring Hills MSO felt burdened by the disintegration of technology and service providers, they would need to implement, integrate their RCM system with and actively support their entire continuum of care, including post-acute care, assisted living, memory care and home care services.

They spend close to a year analyzing and betting several options without finding a partner that could provide them with the end-to-end software they needed to effectively manage their business.

Because of our ability to leverage our more than 500 cost-effective R&D team members to tailor a solution to meet their needs, we now call spend hills of CareCloud client, and we are thrilled to reimburse for the work you do day in and day out to help our customers deliver care to patients and operate their businesses.

I will now turn the floor over to Bill to walk us through our financials.

Bill?

Thank you, Hadi.

Second quarter 2021 was another quarter of exceptional growth for CareCloud.

Revenue was a record $34.1 million, an increase of $14.5 million or 74% from the second quarter of 2020 and 6% above our previous all-time high.

Our average and our annual revenue run rate is now $136 million, which is 29% above our 2020 revenue and 111% above our 2019 revenue.

This is proof that our strategy of growing through a combination of organic growth and acquisitions continues to propel our growth to a level significantly faster than the industry as a whole.

Our second quarter 2021 GAAP net loss was $227,000 as compared to a net loss of $4.8 million in the same period last year.

The 2021 net loss reflects $3.1 million of noncash depreciation and amortization expenses and $1.7 million of stock-based compensation.

GAAP net loss was $0.27 per share-based on the net loss attributable to common shareholders, which takes into account the preferred stock dividends declared during the quarter.

I mentioned that our revenue grew by 74% for the second quarter 2020.

Our total operating expenses grew at a much lower rate, 41% year-over-year, enabling us to reduce our net loss by 95% from second quarter 2020 to second quarter 2021.

Our non-GAAP adjusted net income for second quarter 2021 was $4.5 million or $0.31 per share, calculated using the end-of-period common shares outstanding.

Our non-GAAP adjusted diluted net income per share is $0.26, using end-of-period shares outstanding plus common shares issuable upon exercise of in the money warrants and vesting of outstanding restricted stock units.

Our adjusted EBITDA for second quarter 2021 was $5.7 million or 17% of revenue compared with $191,000 in the same period last year.

Our adjusted EBITDA increased by an eye-popping 2,861% or approximately $5.5 million from Q2 2020, in large part due to the cost savings resulting from integrating the businesses we acquired last year.

This was our 17th consecutive quarter of positive adjusted EBITDA and was just $50,000 shy of our record adjusted EBITDA set in fourth quarter 2020.

Revenue for the first 6 months of 2021 was $63.8 million, an increase of 54% compared to $41.4 million in the first 6 months of 2020.

As our service offerings have grown more complete and the fraction of clients directly utilizing our technology has grown.

We have updated the details we provide in our 10-Q and 10-K to describe our revenues.

The vast majority, approximately 81% of our revenue for the first half of 2021 was directly driven by the use of our technology assets.

This includes 52% of our revenue, which comes from clients using our core technology suite.

23% of our revenue comes from clients who use one component of our technology, and 6% of our revenue comes from clients where we're providing professional IT services using our technology processes and know-how.

Another 8% of our revenue came from clients where we are providing revenue cycle management services, where we're using the technology ourselves, but our clients are not.

9% of our revenue is from clients where we are managing their entire medical practice, and approximately 2% of our revenue comes from other services.

You'll see the new revenue breakdown when you read our 10-Q, which will be filed later this afternoon, and we believe this will better assist the market in understanding who we actually are, a technology company in the health care space that serves a diverse group of clients in an incredibly large addressable market.

For the first 6 months of 2021, our GAAP net loss was $2.2 million or $0.63 per share compared to a GAAP net loss of $7.3 million in the first 6 months of 2020.

Our non-GAAP adjusted net income for the first 6 months of 2021 was $7.4 million or $0.51 per share.

During the first half of 2021, our adjusted EBITDA was $9.3 million, an increase of $8.4 million or 876% from $958,000 in the same period last year.

As of June 30, 2021, we had approximately $9.5 million of cash.

During second quarter 2021, cash flow from operations was approximately $1.1 million.

However, our spending included approximately $4 million during the quarter to resolve a preexisting matter from our purchase of CareCloud Corporation in 2020.

The cost of this settlement was entirely borne by the seller, who forfeited $4 million of the purchase price in the form of shares of our Series A preferred stock, which was held in escrow.

This onetime payment was contemplated at the time of the acquisition.

And without it, our cash flow from operations would have been approximately $5.1 million, similar to our adjusted EBITDA and our adjusted net income.

Our net working capital on June 30, 2021, was approximately $8 million.

Based on our record-breaking second quarter revenue, I'd like to close by updating our forward-looking guidance for the fiscal year ending December 31, 2021.

Our second quarter revenue set a new record and surpassed expectations, and we anticipate continued strong momentum during the second half of 2021.

We have increased our full year revenue guidance from a range of $133 million to $137 million to a range of $135 million to $138 million, at or above the midpoint of our prior guidance range.

This represents growth of 28% to 31% over 2020 revenue.

This includes organic growth, new clients as well as cross-selling new services to existing clients and includes revenue from the medSR acquisition, which occurred on June 1, 2021.

We anticipate this will be our seventh consecutive year with annual revenue growth of 25% or more, a record few public companies have been able to achieve.

We still expect our adjusted EBITDA to be $22 million to $25 million for full year 2021, growth of 103% to 131% over 2020 adjusted EBITDA as we realize the benefits of cost savings and a full year of additional scale from the CareCloud and Meridian acquisitions in 2020.

When we look at our second quarter 2021 adjusted EBITDA, take into account the normal revenue seasonality, which caused our first year adjusted EBITDA to be seasonally low as always, and we consider the cost reductions, which we've put in place, we are very comfortable reaffirming our $22 million to $25 million full year adjusted EBITDA guidance.

I'll now turn the floor over to our Chairman, Mahmud, for his concluding remarks.

Thank you, Bill.

It truly is a pleasure to see how we continue to evolve and provide leading technology-enabled business solutions to health care organizations across the country.

There is no question in my mind that this will be yet another record-breaking year for growth and profitability.

I would like to thank our investors, customers and employees for their continued support.

We will now open the call to questions.

Operator?

(Operator Instructions) Our first question comes from Jeffrey Cohen with Ladenburg Thalmann.

So just a couple from our end at the moment.

So could you talk a little bit about the commercial organization and the sales force?

And talk a little bit about some of the pipeline that we should expect out there, how you're looking at it and where may be coming from as far as your multiple channels for the quarter and forward?

Sure.

Thank you, Jeff.

Thank you for the question.

And I can give some color, and then I'll have Karl jump in for some more details.

We continue to believe, and in the first half of this year, we see a steady sales from through upsell and cross-sell activities.

The key areas like always have included coming from RCM services to RCM to SaaS lines and incorporating BI with these RCM deals.

We are still building the team further.

As we mentioned, this is still a new endeavor for us as we started investing more and more in the last year.

And this medSR acquisition, this was primarily, as we have explained this earlier, is more a strategic acquisition and the whole idea behind this was a foot in the door and/or opportunity or leverage the connections that they have established with the different health systems.

So with that, we are very excited and optimistic about the upcoming opportunities in that space.

I think we are tracking very well in building team and the pipeline, while we don't specifically on the granular basis, quarter-to-quarter, talk about the numbers in terms of the booking.

But based on where we are today, we believe for the full year, we will be able to increase our overall sales booking over the last year.

We don't think it's unrealistic, as we have mentioned earlier for us to be closing by the fourth quarter at a rate of twice the average of Q4 2020.

And some of the notable ones, the new logos include a large software company that is using force to perform AR services and it's for over 100 FTEs, we will be providing from the first CareCloud [for steel] standpoint and also be able to partner with Spring Hill, as we have mentioned that's a notable one.

They have about 35 skilled nursing home and assisted living facility -- facilities.

And there are many others, new logos that we have been able to partner with.

Karl Johnson, would you like to add here?

Yes.

The thing that I would respond to that is those expectations of where we should be by Q4 are firmly being supported by the growth in the pipeline.

We've seen a very significant growth in our pipeline or opportunities, people that we're in discussions with.

We've been working very hard with the sales team.

We made that big investment last year and early this year in increasing the size of the sales team, they've been working very hard on cross-selling services.

So what I mean by that is, in addition to just selling revenue cycle services or software services, now we have the ability to add in credentialing services, coding services, robotic process automation, staff augmentation and the like.

So really, there's strong reasons for why we think that, that sales goal is achievable.

Got it.

Would you say that in a non-M&A environment, which is pretty short for you.

Are you seeing the additional revenue coming from bolt-on and add-on services and utilization?

Or are you seeing the increase coming from purely new accounts?

Or what might be the combination there?

It's actually a combination of the 2. So what we're seeing is we're seeing new logos that are coming on board, that are using a broader range of our services than they may have in the past, and we're also seeing upsells to existing clients adding in services.

Okay.

Got it.

And then lastly for me, any specific specialties to call out that you're seeing some traction and there's some more significant uptake in out there?

I think that with the acquisition of medSR, we're looking at larger multi-specialty hospital groups.

But we've also had very good traction in the number of specialties to simplify it, typically looking at specialties with larger average revenue per claim like orthopedics versus pediatrics.

So we're really pushing hard on those specialties that generate more revenue for us as a company and they have complexity in their needs where we come in and make a good fit.

Has that included any ASCs to date?

Tangentially, yes.

Our next question comes from Richard Baldry with ROTH Capital.

Could you maybe discuss sort of very broadly, how normalized do you feel the operating environment is with regard to COVID?

And maybe from a few different angles, either patient volumes you're seeing coming through, how much back to normal outlooks, sort of the M&A environment?

Are you seeing people start to feel like they're getting their own businesses back in order, which makes them more willing to consider looking at an M&A with their operations, not so much under distress, let's say, any other aspects just so we can sort of feel like how normal this quarter felt?

Great.

Thank you, Richard.

Very good question.

So let me just try to answer in a couple of different ways.

In terms of the patient volumes, so what we are looking at, it's almost back to the pre-COVID levels.

The mix might be a little different.

When I say mix, we see a more and more trend towards the utilization of the telehealth services.

But for us, when we look at pre-COVID, during COVID and post-COVID now, it's back to the normal almost close to the -- close to where it should be with a slightly different mix.

And I [quote] just in terms of some other -- talking about the telehealth, we conducted another survey earlier or later in the last year from the telehealth standpoint.

And the number went up to -- for the same population, it was about 93% of the practices reported frequent to occasional telehealth use.

And after COVID, that number is at 63%.

So we can see, and even then the same thing speaks to when we actually look at it from the overall organization's telehealth numbers before COVID, and we have shared these numbers before, the telehealth was 1% or 1/10th of the overall appointment, and that number went up to somewhere around 25% to 30% range of the total appointments during the pandemic.

And post pandemic, we are tracking it somewhere around 7%, 8% range.

So the debt from that perspective, there is another survey conducted in terms of -- from the -- do they think that they will be able to survive as a medical practice organization.

I think except for one who said we are thinking about shutting it down, either all of them are completely opened or back to normal.

And these results are even there when you get a chance, you can access of our practice plus survey results from the CareCloud website as well.

And Bill, would you like to add something, Sorry, Richard.

Steve wants to add some color, that would be great.

Sure.

I'd be happy to.

And thanks for the question, Richard.

Maybe just addressing the M&A part of your question.

And I think as you alluded to -- the reality is with regard to COVID-related factors have certainly added some frothiness to valuations.

Of course, that's been seen across most industries and segments of the market, including valuations within our space.

Likewise, if we think about the types of companies that historically have been the targets of our acquisition strategy, many of those companies could be classified, characterized as the stressed companies.

And for those companies, some of the governmental relief, together with some of the extended credit terms from lenders and also increased grace from landlords and the like, have enabled some of the investors in the stress companies to delay these inevitable access.

But I think, as your question really alluded to, we really see these trends normalizing as we move forward.

And of course, if you're an investor in a company that has, within the financial state maintenance, many of them will.

Having said that, again, for many of the distressed types of companies that we really focus on, there may still be opportunities.

At to follow-up.

If I look into the OpEx side, the sales and marketing stepped up pretty significantly in the quarter and year-over-year, it's grown pretty strongly.

How do you see that continuing to trend into the second half?

How much more of a scale-up or change in percent allocation there?

And then sort of tied to that, the R&D actually went down, which might not have expected.

Where do you see that trending sort of near term, long term?

So thanks, Richard.

So in terms of sales and marketing, we -- as we've mentioned, we are continuing to put more emphasis on where you sign up $2 of new business, new annual recurring revenue for every dollar that's invested, keep adding people, keep thinking about more innovative ways to grow the business.

And so we'll continue to do that.

So I would anticipate that you'll see sales and marketing continue to increase as we move forward in the rest of the year.

And frankly, Hadi mentioned the idea that we're going to be growing our bookings dramatically from where they were.

There's a couple of phenomena going on here because some of the cross of R&D are people who are U.S.-based onshore employees.

Some are offshore employees.

If you think about 2020, right in the U.S., the architects, the product managers, the visionary, the folks that are controlling the design and integrating the various technologies that we have.

But we'll always look to do that as cost effectively as possible.

Congrats on a good quarter.

Our next question comes from Marc Wiesenberger with B. Riley Securities.

I'm wondering if you could highlight some of the marquee customers that medSR works with.

What percentage of the business operates under any type of recurring or repeatable relationship?

And also, their business model is pretty different than a lot of your prior acquisitions.

So I'm wondering if you could contrast the integration and cost rationalizations going forward relative to how we thought about that with other deals?

Marc, and thank you for the question.

We have the CEO of medSR with us, Jerry.

So I'll -- Jerry, over to you, please.

Sure.

Thank you.

Appreciate the call.

Very pleased to be involved with CareCloud and merge our business in with CareCloud.

So just probably the best background I can give you just the -- we have 4 primary service areas, and they are around system implementation of health care systems, and that includes clinical revenue cycle and ERP business.

We support all vendors equally.

Second is strategic services around IT planning, operational consulting, some business intelligence and analytics.

Third is IT managed services, whereby organizations are turning over some of their IT support to us.

And then lastly revenue cycle, we had a revenue cycle practice that now has significantly more capabilities, but we've always been involved with operations consulting in the revenue cycle space as well.

Our clients include a wide variety of academic health systems, larger health systems, community hospitals as well as some large physician groups.

They include on the hospital side -- on the health system side, organizations like Penn Medicine in Philadelphia, NYU Medical center in New York City, Some -- those are 2 of our bigger clients, Clyde Health System in Western New York.

We've got a strong group of community hospitals that were providing primarily Meditech services to in and around the Boston area.

DCH Health in Alabama is a big Meditech client of ours.

So it's a pretty wide variety of organizations coast-to-coast that are using our services.

We have moved rapidly within the last 2 months to integrate, I think you asked about integration and cost of delivering services.

We've moved aggressively to integrate our back-office systems with CareCloud Corporate.

So we've taken significant steps to streamline our operations in finance, human resources, payroll and IT.

And that's all gone very well for us.

I guess, also about the recurring revenue that we need to sell continuously and also the relationships we have with our customers.

So most of our contracts that we're signing for services, probably the typical time is that we're involved in 6 to 9 months on an initial basis, but most of those customers represent relationships that we have that are continuous year-over-year.

So we are working on different projects and different initiatives, but most of our client relationships are multiyear.

We also have a number of contracts that we put in the managed services category, where organizations may be moving from one hospital information system to another that we -- they're turning over parts of their IT operation to us, and we're doing, for example, legacy system support of all their existing applications while they transition to a new application.

This probably represents somewhere between 10% and 15% of our business in the managed services space.

And lastly, we are very bullish on the revenue cycle management work we can do now within the hospital and acute care space.

We are aggressively working towards cross-selling those revenue cycle management services into our client base.

I'm very excited about, we actually did have one new contract within the last 2 months, where we're working with -- where we'll be working with a behavioral health provider, that is going to be utilizing traditional care cloud services for AR management, AR rundown as well as an ongoing RCM relationship.

So we believe it's a great proof-of-concept.

We are also talking to a couple smaller community hospitals for the same scope of services.

So very optimistic about our new position within CareCloud.

I think the final rule associated with the No Surprises Act was recently passed, and it goes into effect in early 2022.

I'm wondering how that could impact CareCloud's RCM business?

And if you've done anything to potentially quantify potential impacts?

Okay.

No, thanks for the question, Marc.

I mean we are currently just reviewing the details, and I don't think we have a good material information right now to share, but we will look into it, and I think we have the capability to address any and all of those things.

Got it.

Okay.

And then one final one from me.

Cybercrime ransomware across the health system has obviously been a big topic lately.

Wondering if you could talk about CareCloud's current capabilities to ensure customers are protected, and if maybe the additional investments might be needed and potential opportunities for any new verticals in the future?

Great question.

And you're right, it's continuously been on the rise, especially on the health system side or the healthcare sector across the world.

Recently, over the last 6 months, in addition to our internal data security and the compliance team who makes sure that all the best industry standards and the best practices have been implemented, we contracted with another external security firm who basically monitor across the network locally and internationally, and keep on monitoring the traffic in addition to just the conventional way of making sure that the computers and the nodes and the other servers are protected.

So if there is any abnormality, even at the network traffic level, the alerts are raised and then they quickly jump in.

So their approach is basically, they eliminate if there is anything that's too much suspicious automatically and if there's anything that needs to be blocked and a concern is raised to us to do it.

But our team is closely working with them and now the entire organization's network is actively monitored internally and externally.

And our next question comes from Allen Klee with Maxim Group.

You mentioned that in the hospital market, a challenge is getting to the decision maker.

A big challenge is also of all the different doctors and nurses involved that they can integrate all the information correctly.

And often, if you don't have a family member who's an advocate, who's there, mistakes happen, and there's a lot of problems.

So is there anything that you're looking or doing that can try to work on that?

Thanks for the question.

Great question.

I think, in terms of the day-to-day operations from the existing RCM standpoint or small technology solution standpoint, we have been working on with different health systems for the last 20 years, and especially since the IPO, by acquiring some of these bigger companies, the number of hospitals, number of health systems became part of us, we have partnered with them.

So we have sort of figured out many of these operational issues that how we best need to deal with and almost literally and virtually in every single case, and we have examples of, for example, where we have significantly improved the overall performance of their health systems from the RCM from their revenue standpoint.

We go back to them to improve their -- from the denial rates perspective, to improving the AR and so and so on.

And that's where our technology helps.

We look at the many disintegrated systems within the hospital, and yes, it's a bigger task for any hospital to come to a decision of implementing one consolidated full system.

But where we provide the help is, okay, we can look at the disintegrated pieces and we come up with the customized solution, which can sit in between and try to eliminate many redundancies.

We're just very basic single example of it an anesthesia system being used, there is a cardio system being used, both of them are generating a different stream.

So we take the stream, consolidate it using our small piece of software, custom developed for some of that specific area, create, for example, if there is a surgery conducted -- they had to be 2 claims, one coming from anesthesia and other coming from cardiology.

So if either one of those 2 is missing, our system flags it and that's how we start to add value.

This is a very, very simple basic example.

From -- our earlier point was, even though we have lot of these capabilities, the problem is finding that opportunity to be standing in front of them that we have these capabilities.

And so the decision-maker can hear from us, from our sales team that these are the things that we can do.

So that's where we believe this medSR relationships will be really helpful.

Hadi, well, if I might -- this is Jerry.

Let me answer that with just a little bit of color on the medSR side with the health system work that we've done.

For the last 20 years, we've really focused on services and technology enabled solutions.

We have not traditionally provided the technology, but our experts are working with our clients to use the technology more effectively.

And within our market segment, certainly, over the last 10 years, for sure, with the wide adoption of physician order entry and automated clinical documentation, our consultants have worked with all of our leading clients on using that technology more effectively in coordinating care in the different segments in the health system and also providing for better clinical outcomes and better patient experience.

One project, I think it's good representation that we're just kicking off now with a large health system in the Virginia, Maryland area.

They've been a long-term user of a leading clinical information system, but they feel that their clinical and business processes are not aligned with the effective use of technology.

So you're having patients waiting for too long to get responses back from a contact center, et cetera.

So we will be working with them to use that technology more effectively, but also help them modify their processes to, again, improve the patient experience.

So I think we're working right at the forefront of that critical need.

Our next question comes from Kevin Dede with H.C. Wainwright.

You mentioned the medSR deal puts you in a better position to partner with other firms in addressing hospital systems.

Could you elaborate on that?

Maybe give us a few examples and how you see that growing?

And talk to the, I guess, spousing the CareCloud brand within that endeavor?

Thank you, Kevin, and I'll let Jerry take it over, but I can just reiterate the same point I just mentioned, that at least in this hospital space, one challenge always we historically have to deal with is, getting in front of the decision makers.

But I'll let -- I'll leave it to Jerry.

Jerry, why don't you jump in, please?

Sure.

So what we are working with are sales force who have relationships across the health systems that we've traditionally called on.

So we have traditionally called on the Chief Information Officer and IT executives.

Now with the CareCloud Association, we are working actively with our sales teams to call on Chief Financial Officers and Vice Presidents of revenue cycle and discuss with them the capabilities that now the new medSR has around hands on staff supplementation for AR management, operational consulting about optimizing the revenue cycle and then the ongoing challenges of revenue cycle management outsourcing.

So one of our clients that has been a good IT client of ours, we got the introduction to move from the IT area in to the financial space, has been discussions with the CFO and the VP of revenue cycle and introduced our CareCloud services to them.

So we're in the process of crafting an agreement where we help them do AR wind down on some old accounts that they had put in some processes to ensure that their AR performance continues to improve as well as on an ongoing basis, and this is still in the discussion part -- discussion phase, to have them move their revenue cycle operations in its entirety or in parts to CareCloud RCM relationship.

So we believe it's a model for continued success with a lot of our clients, a lot of our community hospitals in rural settings or single sites within a community are all struggling on the revenue cycle performance aspect.

So this solution or this combination of services and technology definitely enables them to take advantage of our capabilities at a reasonable cost.

So it's something that we can -- that we believe is going to fuel a significant growth for us.

Hadi, you're -- obviously, in sales and marketing growth, you've added head count, right?

That's clear.

But given that the CareCloud brand and the fact that you've embraced it across the entire operation, I'm curious to see how you're promoting it or advertising it across the country at this point?

Can you speak to the sales and marketing budget that's not specific to headcount and perhaps more specific to advertising?

Sure.

Great.

Thanks for the question, Kevin.

And I'll hand the floor over to Bill in a minute for -- in terms of the specific to the numbers.

I think, to your point is absolutely right.

The first thing was for us to change the name earlier in the year and the reason was, the rationale was, this is -- that CareCloud name better represents who we are today and our commitment to providing all the cloud-based solutions and to the customer segments we serve.

I think now we are feeling, to your point, it's very important that we get this message across very clearly to the industry.

And even if you think about it today, and as Bill mentioned, even from our revenue line description perspective, we have changed, we have merged from the revenue cycle and SaaS to avoid any confusion, and Bill can talk about the details of those little further.

We are also in the process of engaging with an PR firm.

So when it comes -- from the PR firm, to help from our IR people, to changing and making the appropriate changes to the website, to making the changes and different filings from 10-Qs to all others and helping address through these earning calls, we're right now hitting on all the different areas to get this message across.

But yes, we have changed over time, and it's time now for us to crystallize who we are.

It's just not merely the name change.

And as a matter of fact, if I talk about in terms of return numbers for the first half of the year, if I look at the overall revenue, 52% of the revenue is coming from the clients, who utilizes our core technology components.

And when we say core, it's the certified EHR system and the practice management system and patient engagement solutions.

About 23% of the revenue today comes from the clients who are using either one or more components of their -- of our technologies such as either RPA or PrecisionBI and apps and the like.

And then there is 6% which comes from the different professional IT services.

So it's about over 80% revenue is all technology related, so that's the method we'll be giving in every possible way.

Bill, would you like to share in terms of sales and marketing, any specific numbers, please?

Yes.

I don't think we want to share specific numbers of exactly what we're going to spend and how we're going to apportion it other than to say that, in the world of 2021, we're probably doing less of the people getting on an airplane and visiting customers.

But having said that, we're working on maximizing engagement with customers, potential customers, focusing on clients where we think there's an opportunity to improve their business by cross-selling and letting them use additional services.

So we're doing a variety of things.

And I guess I'd say that any time you're trying to get a culture to a new brand, it's a long process, and it's something that the whole company is always focused on.

And we know, Kevin, you've been a proponent of the single brand idea for a long while.

So we've totally embraced that concept as well and we think, that it's bringing benefits to our clients.

And that concludes today's question-and-answer session.

At this time, I would like to turn the conference back to Kim Blanche for any additional or closing remarks.

We'd like to thank everyone who's joined us on today's call.

We appreciate your participation and your interest in us as a company, and we look forward to speaking to you again next quarter.

Thank you all, and have a great day.

Thank you.

That does conclude today's conference.

We thank you for your participation.

You may now disconnect.